Truth or Consequences

[Daveparts]

Truth or Consequences
By David Glenn Cox


If you were to dig out an ounce of gold from a mountain in the Rockies it would sell for around $900. If you dig out an ounce of gold from a mine in South Africa it sells for? The same $900. The market price is set by the worldwide demand for the product; if you increase supply the price will fall only when it exceeds the demand.

The demand for gold is stable but rising. If all of the gold mines in the world doubled their production, the price of gold would fall very little. Because demand is rising and the mining companies would stop adding to the market if the price fell. So, the Republicans would have us believe this ridiculous delusion that if we drill for oil off the coast of the United States, oil prices would suddenly tumble. How is Aramco drilling in Saudi Arabia and selling it for $120 per barrel any different from Exxon drilling in Alaska and selling it for $120.00 per barrel?

In 1900 there were 4,192 automobiles in the United States; 100 years later there were 450 million autos worldwide and it is estimated that by 2030 there will be 1.2 billion automobiles on planet Earth. It makes the concept of drilling off the coast for 2 million barrels per day to solve our energy crisis sound like sending a Domino’s pizza to Darfur to solve their humanitarian crisis. Sounds good, but makes no sense and follows no logic. It's like the hiker lost in the woods who, rather than seeking rescue, searches for his lost camp where he left his more comfortable hiking boots.

The Republicans counter we wouldn’t have to send that money overseas to the despots and terrorists that don’t like us very much. The same Republicans who have been telling us for twenty years what a great deal free trade is! So you ask why are we trading so heavily with China? It's a nation that is run by a brutal military dictatorship, they answer, by trading with them we can influence them to our way of thinking. Which, by that logic, dictates that we should be trading with Iran, North Korea and Venezuela. Instead we stop trading, and what about Cuba? Don’t we want to influence them as well?

The Republicans like to argue that China is drilling for oil off the Florida coast. Technically true yet totally false. Following the same powers of deduction you could say that oil platforms in the Gulf of Mexico are drilling off the Cuban coast or the Mexican coast. The Chinese are drilling in Cuban territorial waters. Florida has a tourist industry; Cuba does not. They spout the insane notion that oil company profits earned in North America will fall like manna from heaven into American communities, a blind mix of nationalism and patriotism, when oil company profits go only to stockholders regardless of nationality.

The United States consumes twenty million barrels of oil each day, and if we do as the Republicans wish and they get their chance, we can add two million barrels of production a day in seven to ten years. The addition of ten percent in new supplies against 600 million new automobiles on the road worldwide and which way do you suppose the price of oil will go? Of course this is all based on the assumption that US oil production will remain constant, which it will not. It is already in terminal decline.

So, why then the big ruse? Oil companies worldwide are valued by their proven reserves. Like the big man on campus in high school, his reputation is based on who he has dated, not who he is dating now. So the oil companies ignore the lands under lease now to reach for the silver apple of that which was once unobtainable. The coastal leases will add to their proven reserves, even if they never produce enough oil for a squeaking hinge. They judge the value of the oil lease by the Estimated Ultimately Recoverable oil standard.

This category is used to deduct the amount of oil in the proven reserves that is not feasible or cost effective to produce. Deposits that are too small or too deep, but that doesn’t mean you don’t want to hold the lease on such a property. That gives the oil company swagger with banks and stockholders; 20 billion barrels of proven reserves but only 5 billion of EUR. Like a game of liar's poker, the goal is to snatch up the proven reserves and then produce where it is cost effective and where the least expensive leases are to be found.

And that’s on your federal lands and along your national coastlines, of course. A 1995 program, begun under the Clinton administration and expanded under Republican leadership, grants oil companies relief from paying royalties to you, the US tax payer, until a threshold of production is met. So while you’re paying through the nose at the pump, the oil companies are getting a discount on oil that belongs to the people of the United States. The original intent was to encourage offshore drilling but the threshold is based on $32 dollar a barrel price. Any wonder why John McCain, along with his campaign co-chair Senator Enron, are screaming, we need more offshore drilling!

The GAO estimates the loss to the taxpayers is $38.3 billion; some estimates go as high as $53 billion. As bad as that might sound, you, the taxpayer, will pay it twice! First you will pay it as lost tax revenue that must be made up elsewhere, then you will pay it a second time at the pump, as the oil companies windfall will not be passed along to you.

We, as a people, know that we must wean ourselves from fossil fuels. So why the argument over drilling? We are like smokers who promise to quit tomorrow. Our government, our industries, and our politicians are well lubricated by the oil industry largesse. Where is the counterbalance? How can industries and technologies, not established and in some cases not even invented, hire lobbyists to catch the ear of Washington? GM’s EV-1 electric car was an answer to a pilot program by the state of California. The car was a practical success, but it encouraged other states to follow suit and tighten environmental standards.

It was a practical success but a potential disaster, forcing GM to deal with stricter standards and costly changes in production. Repeat after me, you don’t like electric cars, you want a Suburban! You don’t like electric cars, you want an Escalade! Change requires a huge outlay of cash with the benefits, if successful, to follow. The status quo requires no such huge outlay of cash, with the potential costs to be revealed at some later date and on someone else’s watch.

Like the lost hiker, going forward into the unknown requires courage while staying on the paths he’s trod offers comfort but without rescue.

[KillgoreTrout]

1. Reply

Good post Dave, and good analogies. Drilling for more oil is just like a drug addict who is forced to find a different dealer. The habit remains the same.